Monday, May 4, 2009

I Hate Big Companies So Much, I Want To Pay Their Taxes For Them

The administration is cracking down on overseas tax havens. It makes sense, I suppose.

If you have a large and expensive shopping list (healthcare, cap-and-trade) and a large-ish deficit, you need all the cash you can lay your hands on. And going after 'tax cheats' is popular and hard to argue against. From the WSJ

The Obama administration wants to overhaul what it describes as a much-abused set of regulations known as the "check-the-box" rules. These give companies great latitude in deciding where exactly their subsidiaries should be taxed. Those rules have encouraged companies to take further advantage of low-tax haven countries with their offshore subsidiaries.

The administration also wants to toughen rules governing the tax credits that the U.S. grants companies to offset taxes they pay to foreign governments. That system has become the subject of elaborate gaming, U.S. tax officials say.

Overall, the deferral proposal would raise about $60.1 billion through 2019, according to the administration's estimates. Unlike a similar proposal in the House, it wouldn't affect research deductions, a likely victory for some industries such as pharmaceuticals. The reform of check-the-box rules would raise about $86.5 billion through the same period. The changes in foreign-tax-credit rules would raise about $43 billion. The changes to crack down on individual bank accounts would raise $9 billion.

Mark my words: there will be endless bombast and hysteria over this. We (by which I mean me and the 2 people who read this blog) could have endless arguments about the duty of corporations to 'pay what they owe', the meaning of the word 'owe' and the issue of corporate responsiblity, all of it terribly entertaining and ultimately pointless.

The one thing that I don't think anyone will dispute is this. If the tax structure ends up costing companies more money they will compensate by raising prices or moving someplace else. Its just flat out impossible to dispute this.

Cigarettes don't cost 10 dollars a pack in New York City because the cost to produce, transport and sell them (including profit along the supply chain) actually comes to 10 bucks. They cost that much because the end consumer pays the state and federal taxes. Did you really think Phillip Morris was going to pay the taxes out of their profit?

The same will be true of whatever good or service these multinational corporations produce. So anyone cheering Obama on as he and his administration go after the evil businessmen will soon feel the sting in their own wallet.


Atom Smasher said...

At least people got what they voted for - no regrets. Higher taxes and government expansion of power and size. That's gotta make 'em feel better.

Tam said...

The only entity that canpay taxes, ultimately, is the individual consumer. "Corporate Taxes" are a myth. If the government wants to raise a million dollars to buy diapers for needy babies, and charges the Great Big Diaper Co. a $1,000,000 tax for the purpose, then Great Big Diaper Co. is going to have to lay off $500,000 worth of employees and raise their diaper prices by $500,000. (Unlike the government, GBDC can't just print money.)

Now you have more needy babies and diapers are more expensive. Good job, government!

MeatAxe said...

That sounds right to me. The way I understand it, the only creator of value in any economy is the individual.

If you try to come up with a way to extract value from companies, state governments, or any other economic actors, and you follow the chain of related actions, you always end up with an individual paying the cost one way or another.

If there's an exception to this, I'd love to hear it, as I've run this as a thought experiment a couple times and haven't come up with another outcome.

Post a Comment